REC Silicon Annual Report 2019

REC Silicon Annual Report 2019 13 The Group reported consolidated equity of USD 0.8million at December 31, 2019. The low equity level reported by the consolidated group is caused by the impairment of the Solar Materials segment (see note 3 fixed assets) and the relatively low carrying of operating assets in the Semiconductor Materials segment. However, the Company reported net equity of USD 148.2million in the financial statements of the parent company, REC Silicon ASA, at December 31, 2019. The parent company equity consists of share capital of USD 33.9million and other equity and retained earnings of USD 114.3million. The Board of Directors considers the equity level of the Company adequate for the Company’s current situation. The Board of Directors will monitor equity levels and take appropriate action as necessary. The Board of Directors also makes reference to the risk factors discussed in this report. Specifically, the sections on the Company’s liquidity risk and the impacts of tariffs imposed by China on US polysilicon which create significant uncertainty for the Group, its customers, certain other competitors, and the industry as a whole. In addition, if conditions surrounding the call of the indemnification loan or the outcome of tax examinations are negative (See note 31 to the consolidated financial statements), the Company will not have the liquidity necessary to meet its financial obligations and continue to support the working capital requirements of ongoing operations. The economic impact of the current global response to the COVID-19 (novel coronavirus) outbreak are expected to adversely impact the Company’s liquidity risk. The impacts of the COVID-19 outbreak are dependent upon the extent and duration of the outbreak. If markets served by the Company are impacted further and/or do not recover quickly, the Company’s liquidity risk will increase further. In addition, if the impact of COVID-19 lasts for an extended period of time and/or capital markets are substantially degraded, the Company’s ability to raise additional capital and sell assets may be adversely affected. The risk factors described above indicate that material uncertainty exists and cast significant doubt on the Company’s ability to continue as a going concern. Management and the Board of Directors have identified initiatives to reduce spending and to improve the efficiency of the Company’s operations. If necessary, the Company plans to sell assets, issue debt, and/or issue additional equity to obtain additional capital.The Board of Directors believes that these initiatives and plans are realistic and are sufficient to support the assumption that the Company has the ability tomeet its financial obligations and continue to support theworking capital requirements of ongoing operations for the next 12months. Accordingly, the Board of Directors confirms that the Financial Statements have been prepared under the assumption that the Company is a going concern and that this assumption is appropriate at the date of the accounts. REC SILICON ASA (NGAAP) Financial Review RECSilicon ASA (the Company) prepares its financial statements according to NGAAP. The Company is a holding company with corporate management and financial functions. In 2019, RECSilicon ASA had a negative EBITof USD1.6million compared to a negative EBITof USD1.7million in 2018. The Company recorded a net loss of USD85.0million in 2019. The net loss included net financial expenses of USD83.3millionwhich includes impairment of loans to subsidiaries in the United States of USD13.7million, impairment of shares in RECSilicon AS of USD57.0million, and interest expenses of USD13.3million. Interest income fromsubsidiaries was suspended for 2019 and 2020 due to the financial position and outlook of the borrowing companies. Interest incomewas USD70.7million in 2018. The remaining USD0.7million of net financial items was due to interest income, other financial expenses, and currency gains and losses. In 2018, the net loss includedUSD391.1million due to the impairment of RECSilicon ASA’s loans to its subsidiaries in the United States andUSD10.0million due to the impairment of RECSilicon Pte. Ltd. (See note 31 to the consolidated financial statements and noteMto the financial statements for REC Silicon ASA). Total equity for the parent Company was USD148.2million at December 31, 2019 compared to USD214.2million at December 31, 2018. This decrease is a result of the net loss of USD85.0million discussed above whichwas partly offset by USD19.0million in net proceeds from the private placement of equity. Allocation of the Net Loss for the Parent Company The Board proposes that the net loss for the year of USD 85.0million be distributed to Share Premium (USD 16.1million) and other equity (USD 68.9million). Organization REC Silicon ASA had one employee at the end of 2019. Change of Control The USD Senior Secured bond agreement and the indemnification loan have change of control provisions. If a shareholder or a group of shareholders gains control of more than 50 percent of the share capital, bondholders acquire a put option entitling them to cancel the commitments and declare all outstanding amounts and accrued unpaid interest due and payable. More detailed information can be obtained from the bond trustee, Nordic Trustee ASA. RISK FACTORS The Group’s activities expose it to a variety of financial risks, including currency risk, interest-rate risk, liquidity risk, credit risk, refinancing risk and others (See note 3 to the consolidated financial statements). Market Risk REC Silicon believes that there are significant uncertainties related to the market development going forward. This uncertainty relates primarily to supply and demand balance and its effect on polysilicon and silicon gas prices due in part to the ongoing trade dispute between the United States and China. The impact of tariffs imposed on US polysilicon by China have prevented REC Silicon from participating in key polysilicon markets. As a result, REC Silicon has been forced to shut down the FBR plant in in Moses Lake, Washington to reduce spending and to maintain the Company’s liquidity. Board of Directors’ report